U.S. consumers babes in woods, test concludes

WASHINGTON -- U.S. consumers' ignorance about the marketplace costs them billions of dollars, threatens their health and safety and undermines the national economy, a consumer group reported yesterday.

Most Americans don't know that auto insurance rates vary widely from company to company, that life insurance becomes less important as one grows older and that real estate agents represent only the seller.

"Many consumers are not equipped to function competently in the marketplace," concluded Stephen J. Brobeck, executive director of the Consumer Federation of America, a coalition of 240 consumer groups that sponsored the nation's first comprehensive test of consumer knowledge.

The dismal findings highlight an information gap affecting consumer spending, which, according to the U.S. Office of Consumer Affairs, accounts for two out of every three dollars in the U.S. economy.

But what's at stake "is not only the welfare of individual consumers, but also the efficiency and productivity of our economy," added Michael Van Buskirk, an executive with TRW Inc.'s information systems division. The TRW Foundation paid for the test.

The test sponsors said the scores also suggest that schools are failing to teach consumer skills and that the laws and regulations enacted over the past two decades to protect consumers are irrelevant to those who don't know about them.

On average, consumers who took the consumer knowledge test, administered earlier this year at shopping centers in seven states, gave correct answers to only 54 percent of 249 questions about banking, insurance, product safety, food and buying a house or car.

Minorities, the poor and those with less education got even lower scores. Hispanics and blacks scored 13 percent to 15 percent lower than whites. Those with income under $15,000 scored 17 percent lower than those who earned $50,000 and over. College graduates scored 20 percent higher than those without a high school degree.

But even the best-educated Americans, who scored 62 percent, performed relatively poorly. A person could get about 25 percent of the multiple-choice test right simply by guessing, Mr. Brobeck said.

Consumer knowledge was high in areas targeted by advertising or news coverage. For example, 79 percent knew that inhaling asbestos fibers could cause cancer, and the same percent knew that antihistamines can cause drowsiness.

But in most other areas, "Americans are not knowledgeable about consumption," Mr. Brobeck said.

Only 21 percent knew that auto insurance rates for the same coverage can vary by 100 percent, while only one-quarter of those tested knew that life insurance becomes less important as one grows older.

Only 37 percent knew that the annual percentage rate is the best indicator of a loan's cost. And only 36 percent knew that, legally, insurance agents represent not buyers, but sellers.

The test underscores the need to develop more effective ways to communicate consumer knowledge, Mr. Buskirk said. The test's sponsors and Consumer Affairs are planning a national conference.

With funding from American Express Co., the consumer federation also plans to give the test to high school seniors and use the results to improve consumer education in public schools.

The consumer test was given in May and June to 1,139 adults at shopping centers in Harrisburg and York, Pa., San Antonio, Texas, New York City, Los Angeles, Chicago, Atlanta and Boston.